Tag Archives: Politics

vulture

Argentina and the vulture funds

vultureI suspect that many Commentator readers are going about their business without paying much attention to battles in the New York courts over Argentina’s sovereign debt.

When governments cannot raise enough money from taxes to pay for their various schemes, they borrow it on local or international markets. Thus the fascinating question for foreign lenders: will this government pay back the money it has borrowed?

In principle, no problem. Governments might be expected to behave decently (defaulting on debt besmirches national honour). Plus governments can to raise taxes or inflate the currency and somehow find the money needed to keep foreign creditors happy.

However, down the ages, all sorts of ingenious excuses have been used by governments to avoid fulfilling their responsibilities, and defaults have taken place. Defaults come with a cost. Lenders lick their wounds and for a while are cautious about lending to that country again.

As large sums of money are involved, fiendishly complicated rules have emerged for managing situations where governments can’t or won’t pay their debts (see the prolonged writhings of Greece). Sometimes debts are written off in large part or completely, or the period for repayment is extended well into the future. It boils down to the same thing. Lenders take a hit.

Hence the question: which lenders take which hit? Should other sovereign lenders or perhaps, for example, the IMF do better amidst the carnage than private sector lenders? And as always the mega-question: who decides?

This new case in the New York courts tackles some of these problems head-on.

Back in 2001 Argentina defaulted once again on its sovereign debt and “restructuring” took place. However, two hedge funds (aka ‘vultures’ that speculate on weak states’ sovereign debt problems) have objected to losing out from this process and have taken the issue to court. The judge has ruled in their favour, but more importantly has issued an order stopping third parties from “aiding and abetting” violations of his ruling. This deters banks from making payments to other creditors under the restructuring deal, creating disarray in the wider restructuring process and other Argentinean financial transactions.

Expensive consternation. Could this decision force another Argentinean default in which everyone loses even more? More lawyers pile in and start filing appeals.

How far does this case matter? These days bond agreements typically contain “collective action” clauses that allow a certain majority of bondholders to force ‘holdouts’ (i.e. the hedge funds in this Argentinean case) to sign up to an agreed settlement. So this problem can’t arise.

On the other hand, when governments default, private creditors traditionally have found themselves towards the sad end of the line of creditors. They have tried to hit back by seizing physical assets owned by those governments (ships, aircraft) but usually fail because of “sovereign immunity”.

This New York case opens the way for a fascinating new approach, allowing creditors to go instead after flows of money to those governments. So a lot is at stake (or at least may be) for the way governments deal with private creditors.

Interesting – but unimportant? Don’t all creditors take the likely creditworthiness of borrowers into account and price that into their business strategy and interest rates?

These problems are fascinating because they cast light on how we look at the moral responsibility, and who bears the cost when people behave irresponsibly.

All government comes complete with vast moral hazard. Government asserts to itself the sole right to use force to compel people on its territory to pay money for causes it proclaims worthy (taxes). Plus government then asserts to itself the right not to pay back debts or to keep its promises, all under the banner of sovereign immunity. Governments as lenders barge to the front of the lenders’ queue when other governments default.

This brutish behaviour is impossible to accept for individuals, so why is it OK for the institution purporting to represent the society comprised of those individuals?

Government greed and profligacy are mainly justified on ill-defined utilitarian grounds: for all the problems governments create, we all benefit overall if the state sets rules and maintains order. But very different arguments are also heard, based on ill-defined lofty principles: government is an a priorimoral force for good, especially redistributive good and ‘fairness’.

These rival positions are neatly expressed in two pieces about this Argentinean debt drama. In the first, Felix Salmon at Seeking Alpha looks hard at what is really happening and finds beneath the bluster and thick legal smoke a conventional battle of hard interests.

But then behold Huffington Post UK, where Nick Deardon of Jubilee Debt Campaign sees things very differently:

international debt is governed by a perverse set of laws, developed since the 1970s, which see a nation state as simply another ordinary actor in the ‘market’. A state, with a duty to protect the human rights of millions of citizens, is dealt with in much the same way as any other company or investment fund – worse in that it doesn’t even have the sort of bankruptcy protection afforded to local authorities and individuals.

In spite of all manner of international treaties and UN conventions, the human rights of citizens is not something to take into account when deciding whether a debt should be paid or not. A state’s first duty is not to its people – but the market.

This couldn’t be better demonstrated than in the latest New York judgement, which implies that a law Argentina democratically passed to prevent the President negotiating with vulture funds, is effectively in contravention of their duty to the market.

Of course the market is unable to function without the state – it was the powerful states of the world, including the US and UK who created the laws governing this investor-friendly paradise. That’s why ‘free market’ bandits like Elliott run to the US courts to try to extract their profits from Argentina.

If we want to try to change this, people must force their governments to speak up for their rights over the rights of the markets. That means speaking up for Argentina’s government when they in turn stand up against the vulture funds.

Perverse laws! Those pernicious, apostrophised ‘markets’! The Argentinean state has a duty to protect the human rights of millions of its citizens (Note: pause for hollow laugh), but should cheerily fulfil that duty by borrowing far beyond its means, then cheating millions of other private citizens elsewhere in the world who foolishly trusted Argentina’s word and lent it their savings.

An investor-friendly paradise! A paradise in which governments cheat private investors then hide behind their ‘sovereign’ rights, and make sure that private investors fall to the bottom of the lenders’ line when things go wrong? The Financial Times is tentatively suggesting that this New York decision “may on the margins encourage better behaviour” by defaulting states. Shock! Encouraging better behaviour by greedy states towards private investors? Whatever next?

The very worst thing about this HuffPo UK populist-collectivist lumpen moralising is that it downplays to nothing much the moral value of those states that borrow money and repay it politely and on time. These states are the backbone of the planet’s financial order.

By contrast incompetent states like Argentina massively mess up time and again and then hoot that they are victims of greedy market forces to wriggle out of their obligations. Maybe they are the vultures, preying down the decades on the good will and patience of everyone else?

By Charles Crawford: Contributing Editor to The Commentator. A former British Ambassador in Sarajevo, Belgrade and Warsaw, he is now a private consultant and writer. Visit his website and follow him on Twitter: @charlescrawford

Photo source: http://www.thehindu.com

Chavez-10-2011

Chavez shakes Venezuelan politics for their health

Chavez-10-2011

As ever in these days Hugo Chávez at the center of the scene in Venezuela. He said Monday he did not want to answer the rumors, but it came out on Thursday. He denied four times in less than 24 hours his condition had worsened health: the 2012 election campaign moves to the rhythm of their disease. That morning, the Miami Herald had published that he was hospitalized.

In Caracas different sources spoke of isolation by low defenses because of the last chemotherapy session. A week ago the “president-commander” did not appear on camera. That day with baseball in hand, to deny everything and went back to talking about the origin of his illness was the tumor that was removed. As it has done since late June, did not say where he was staying cancer. But medical reports circulating in the diplomatic atmosphere gives a diagnosis: Kaposi’s psoas. The malignant tumor “size of a baseball” that extracted on June 20 locked in the muscle that gives movement to the thigh. In the pelvic area, as she always said the Venezuelan leader.

The lack of official information on health has increased speculation Chavez and many say it is the main protagonist and which define the outcome of the upcoming presidential elections, which were advanced two months. On October 7, 2012, Venezuelans will elect a president. Chavez, 57, in power since 1999, running for a third term of six years. The opposition is prepared to confront it united. Some polls show them tied on intention to vote in about 35 percent, with a similar percentage of undecided voters. But Chavez’s popularity remains at 50%. “His illness had a major impact on both Chavez and the opposition”, he said from Caracas, Luis Vicente Leon of Datanalisis, a leading political consultant Venezuela.

“Not to say that the high level of support it has today Chavez will hold steady, but no doubt contributed to its popularity in recent months. Through the ups and downs of health, Chavez has established a mystical-religious link with the electorate. It would be rare for these last episodes set the stage for strengthened again in days. That, of course, if there is a serious disease, which nobody knows “, said political analyst.

The opposition also moves to the rhythm of the health of Chavez. “He gave a more dynamic, united at least for the first stage ends with the February primaries. In that sense, has been positive for them “, said Leon.

Chavez began to show signs of deteriorating health in early May. On June 2, appeared with a cane because he had a sore left knee. His presidential agenda was modified. But his presidential tour of Brazil, Ecuador and Cuba was not modified. Chavez left Caracas in early June, but his last stop could not continue. Fidel Castro was the one who noticed that something more than a nuisance in the Bolivarian limping leg. It was at midnight that Cuban doctors subjected him to study and determined that they must operate by an infection in the pelvis. A few days later, it was Fidel who gave him the results of the biopsy. It was cancer and had to operate again. It happened on June 20. Chavez led a restless life. Drank 40 cups of coffee a day, weighed 100 kilos and was with three phones that kept ringing. The change of life was abrupt. Colonel of the Parachute Division was again felt a young cadet. He rises at five and read “Thus Spake Zarathustra” by Friedrich Nietzsche.

On his return to Caracas was seen thinner. A week later he began a course of chemotherapy, which has four sessions. The last was on September 17 in Cuba and was surprised because just a few days earlier the 10 – said: “I beat cancer.” But the rumors again. Corticosteroids that supply, as part of treatment, causing him to go up in weight. The “moon face” fueled suspicions that his health was not as good as claimed. His image was realized that in treatment despite their claims. In short, are his words and his silences, which as usual movers and shakers of the electoral campaign in Venezuela. Yesterday, he spoke again. He said his recovery was “amazing.” He said he would be elected in 2012 for six years. And then in 2019 and 2025. Imagined until 2031 in power.

The Latin American bicentennial used as nationalist and populist propaganda

Today news are many personal blog about the bicentennial of the countries of Latin America.
Even CNN has developed special programs for this.
Beyond just and deserved celebration just want to add something to put in perspective:

These Bicentennial only serve as distraction mechanism nationalist.
Governments are mere shift CIRCUMSTANCES.
It is people who celebrated. It’s in them, from their ancestors, their nations were great. Governments, only spoiled the dreams of American citizens, their parents, grandparents and great grandparents, etc..